Co-Presidents John Pleasants and James Pitaro announce a sweeping reorganization of the group's money-losing digital media division, including the closure of a development studio.

After sales of the Tron: Evolution video game failed to crack the 1-million… (Disney Interactive Studios )

When it comes to games, Walt Disney Co. is embarking on a new game plan.

The entertainment giant is restructuring its money-losing digital media group, laying off employees and closing a game development studio as the company shifts away from expensive console games to focus on online and mobile entertainment.

Disney Interactive Media Group laid off about 200 people Monday as co-Presidents John Pleasants and James Pitaro announced a sweeping reorganization of the unit's games and online groups. The cuts are believed to represent the first wave of reductions, with more expected in the coming months as the recently installed executives work to trim costs and achieve profitability, according to people with knowledge of the situation.

"Reorganizations require very difficult decisions and this one is no different," Pleasants and Pitaro wrote in an e-mail sent Monday night to employees. "We must continuously evaluate our structure and organization and its needs in order to make Disney's digital content and businesses even more robust and successful."

The pair of executives were installed in October with a mandate to reverse the fortunes of Disney's digital media group, which reported a net loss of $787 million over the last three fiscal years on revenues of nearly $2.2 billion. The red ink kept flowing, even as the company increased spending on video games.

"Several years ago, they had said they were going to invest money to build a video game business. They have done that … and with a couple of exceptions, they've really had very little success," said Douglas Creutz, an analyst with Cowen and Co. "Turns out, it's a tough business."

Indeed, among the console games released in 2010, several failed to sell even 1 million units, including two pegged to Disney films — Tangled: The Video Game and Tron: Evolution — and the racing game Split/Second. Disney Interactive closed Propaganda Games, the Vancouver, Canada-based development studio responsible for the Tron game, earlier this month.

"Disney has been consistently frustrated in trying to build its market share" in console games, said John G. Taylor of Arcadia Investment Corp., an institutional research boutique in Portland, Ore. "One of the surprises of the last three or four years was how unproductive most of their movie-related titles were.… There's got to be a better way to do this."

Creutz and others on Wall Street interpreted Disney's $563.2-million acquisition last summer of Playdom, a company that develops games for social networks such as Facebook and MySpace, as signaling a shift in strategy for the games group.

Within months, Steve Wadsworth, the executive who had led Disney's online and games group for more than a decade, was out — followed shortly thereafter by Graham Hopper, who had spearheaded Disney's push into console games. That market has been in decline for two years.

Under the new structure outlined Monday, Alex Seropian — one of the creators of the successful Halo space marines franchise who joined Disney in 2009 — will oversee game development, as well as the game studios of Blackrock, Junction Point, Avalanche, Wideload and Gamestar. Lane Merrifield, creator of the Club Penguin online community for children, will play an expanded role overseeing game initiatives for kids and families.

Adam Sussman, one of the key executives behind Electronic Arts' success in mobile entertainment, will head up publishing, a newly created group that will oversee marketing and production for the gaming group.

The shake-up came as no surprise to the video game industry.

"I think these guys walked in with a mission to lower the cost structure," said Michael Pachter, a game industry analyst with Wedbush Securities. "Rather than make them out to be the bad guys, they're the executioners."